VIA Technologies, Inc. Financial Statements for the Years Ended December 31, 2012 and 2011 and Independent Auditors Report

Transcription

1 VIA Technologies, Inc. Financial Statements for the Years Ended December 31, 2012 and 2011 and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT The Board of Directors and Stockholders VIA Technologies, Inc. We have audited the accompanying balance sheets of VIA Technologies, Inc. as of December 31, 2012 and 2011, and the related statements of income, changes in stockholders equity, and cash flows for the years then ended (all expressed in New Taiwan dollars). These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of VIA Technologies, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. As discussed in Note 3 to the financial statements, the Company adopted on January 1, 2011 the newly revised Statement of Financial Accounting Standards No. 34, Financial Instruments: Recognition and Measurement, and No. 41, Operating Segments

3 We have also audited the consolidated financial statements of VIA Technologies, Inc. and its subsidiaries as of and for the years ended December 31, 2012 and 2011, and our report dated February 20, 2013 has expressed an unqualified opinion and an unqualified opinion with an explanatory paragraph, respectively, on those statements. February 20, 2013 Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail. Also, as stated in Note 2 to the financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English

4 VIA TECHNOLOGIES, INC. BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents (Notes 2 and 4) $ 1,031, $ 1,346, Financial liabilities at fair value through profit or loss, Financial assets at fair value through profit or loss, current (Notes 2 and 5) $ $ 8,142 - current (Notes 2, 5 and 26) 1,301, ,120, Notes payable 2,221-1,439 - Available-for-sale financial assets, current (Notes 2 and 6) 53, ,687 2 Accounts payable 398, ,128 6 Notes receivable, net (Notes 2 and 7) 2,592-11,859 - Notes and accounts payable to related parties (Note 25) 45, ,150 1 Accounts receivable, net (Notes 2 and 7) 99, ,804 2 Accrued expenses (Notes 17, 25 and 28) 541, ,093 5 Notes and accounts receivable from related parties, net Other current liabilities (Note 18) 223, ,881 2 (Notes 2, 8 and 25) 79, ,207 1 Other receivables (Notes 2, 9 and 25) 59, ,973 1 Total current liabilities 1,210, ,478, Inventories (Notes 2 and 10) 568, ,120, Deferred income tax assets, current (Notes 2 and 23) 179, ,995 2 LONG-TERM LIABILITIES Restricted assets, current (Note 26) 90, Long-term bank loans (Note 19) 1,000, ,000 6 Other current assets (Note 11) 43, ,356 1 OTHER LIABILITIES (Notes 2, 13, 20 and 25) 369, ,530 1 Total current assets 3,509, ,436, Total liabilities 2,580, ,286, LONG-TERM INVESTMENTS (Notes 2, 12 and 13) Financial assets carried at cost 19,987-29,104 - STOCKHOLDERS EQUITY Long-term investments under equity method 1,854, ,831, Common stock (Note 21) 4,933, ,866, Capital surplus Total long-term investments 1,874, ,860, Long-term equity investments (Note 13) 260, ,489, Retained earnings (Note 21) PROPERTY, PLANT AND EQUIPMENT (Notes 2, 14 and 16) Accumulated deficit (1,476,410) (21) (5,568,959) (51) Land 769, ,701 7 Cumulative translation adjustments (Note 2) 595, ,666 6 Buildings and improvements 439, ,359 4 Unrealized gains on financial instruments (Notes 2 and 6) 34, ,479 2 Machinery and equipment 30,875-28,755 - Computer equipment 55, ,864 1 Total stockholders equity 4,347, ,643, Instrument equipment 37, ,249 1 Transportation equipment 2,987-2,987 - Furniture and fixtures 959-1,034 - Leasehold improvements 3,806-3,477-1,341, ,356, Less accumulated depreciation (226,199) (3) (197,890) (2) Net property, plant and equipment 1,114, ,158, INTANGIBLE ASSETS (Notes 2, 15 and 25) Patents 4,992-12,639 - OTHER ASSETS Leased-out assets (Notes 2, 16 and 25) 249, ,597 2 Refundable deposits 13,587-13,683 - Deferred charges (Notes 2, 15 and 25) 146, ,907 1 Deferred income tax assets, noncurrent (Notes 2 and 23) 13,758-64,453 1 Total other assets 423, ,640 4 TOTAL $ 6,927, $ 10,929, TOTAL $ 6,927, $ 10,929, The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 20, 2013) - 3 -

5 VIA TECHNOLOGIES, INC. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Loss Per Share) Amount % Amount % OPERATING REVENUES (Note 2) Sales $ 3,655, $ 4,579, Less sales returns (2,566) - (10,054) - Less sales allowance (306,172) (9) (301,337) (7) Net sales (Note 25) 3,346, ,267, Other operating revenues (Note 25) 16,868-13,819 - Total operating revenues 3,363, ,281, COST OF OPERATING REVENUES (Notes 22 and 25) (2,241,230) (66) (2,753,031) (64) GROSS PROFIT 1,121, ,528, UNREALIZED PROFIT FROM INTERCOMPANY TRANSACTIONS (Notes 2 and 18) (3,693) - (3,464) - REALIZED PROFIT FROM INTERCOMPANY TRANSACTIONS 3,464-2,598 - REALIZED GROSS PROFIT 1,121, ,527, OPERATING EXPENSES (Notes 22 and 25) Selling and marketing expenses 438, , General and administrative expenses 407, , Research and development expenses 960, ,041, Total operating expenses 1,806, ,072, LOSS FROM OPERATIONS (684,947) (20) (544,352) (12) NON-OPERATING INCOME Interest income 6,432-2,959 - Dividend income 170, ,320 4 Gain on disposal of property, plant and equipment and leased-out assets (Notes 2 and 25) 490-1,885 - Gain on sale of investments, net (Notes 2, 5 and 6) 155, ,139 - Foreign currency exchange gain, net (Notes 2 and 5) 13,649-28,813 1 Rental income (Note 25) 14, ,758 - Gain on reversal of bad debts (Notes 2 and 8) 5,104-5,953 - Others (Note 25) 71, ,038 5 Total non-operating income 437, , (Continued) - 4 -

6 VIA TECHNOLOGIES, INC. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Loss Per Share) Amount % Amount % NON-OPERATING EXPENSES Interest expense (Note 23) $ 9,292 - $ 25,545 1 Investment loss under equity method (Notes 2 and 13) 2,906, ,355, Impairment loss (Notes 2 and 12) 9,117-2,475 - Valuation loss on financial assets, net (Notes 2 and 5) 819, ,553, Valuation loss on financial liabilities, net (Notes 2 and 5) 885-8,142 - Others (Note 16) 6,108-10,071 - Total non-operating expenses 3,750, ,954, LOSS BEFORE INCOME TAX (3,997,848) (119) (3,061,360) (71) INCOME TAX EXPENSE (Notes 2 and 23) (74,989) (2) (369,130) (9) NET LOSS $ (4,072,837) (121) $ (3,430,490) (80) Before Income Tax After Before Income Income Tax Tax After Income Tax BASIC LOSS PER SHARE (Note 24) $ (8.10) $ (8.26) $ (6.21) $ (6.95) The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 20, 2013) (Concluded) - 5 -

7 VIA TECHNOLOGIES, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) Capital Surplus Retained Earnings Cumulative Unrealized (Losses) Additional Paid-in Long-term Equity (Accumulated Translation Gains on Financial Capital Stock Capital Investments Deficit) Adjustments Instruments Total BALANCE, JANUARY 1, 2011 $ 9,866,069 $ 690,000 $ 257,461 $ (2,828,469) $ 567,115 $ 15,973 $ 8,568,149 Additional paid-in capital transferred to make up for accumulated deficit - (690,000) - 690, Increase in capital surplus of equity method investees - - 3,232, ,232,351 Net change in shareholders' equity of equity-method investees ,784 55,784 Unrealized gains on financial instruments , ,722 Translation adjustments on long-term investments , ,551 Net loss for (3,430,490) - - (3,430,490) BALANCE, DECEMBER 31, ,866,069-3,489,812 (5,568,959) 677, ,479 8,643,067 Capital reduction to eliminate accumulated deficit (4,933,035) - - 4,933, Subsidiary's transfer of capital surplus to offset deficit taken up by the Company - - (3,232,351) 3,232, Increase in capital surplus of equity method investees - - 3, ,335 Net change in shareholders' equity of equity-method investees (55,784) (55,784) Unrealized loss on financial instruments (88,051) (88,051) Translation adjustments on long-term investments (82,112) - (82,112) Net loss for (4,072,837) - - (4,072,837) BALANCE, DECEMBER 31, 2012 $ 4,933,034 $ - $ 260,796 $ (1,476,410) $ 595,554 $ 34,644 $ 4,347,618 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 20, 2013) - 6 -

8 VIA TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (4,072,837) $ (3,430,490) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation (including depreciation of leased-out assets) 34,540 40,975 Amortization 69,670 74,975 Gain on disposal of property, plant and equipment (490) (1,885) Impairment loss 9,117 2,475 Gain on sale of investments (154,855) (5,954) Investment loss recognized under equity-method 2,906,105 1,355,294 Cash dividends received from equity-method investee 20,323 48,721 Accrued pension cost (3,439) (3,890) Deferred income tax expense 75, ,628 Increase in deferred credits - 1,896 Net changes in operating assets and liabilities Financial assets held for trading 819,052 1,553,346 Notes receivable, net 9,267 27,373 Accounts receivable, net 66,921 33,275 Notes and accounts receivable from related parties, net 44,290 94,169 Other receivables 53,087 (27,765) Inventories 551,525 86,732 Other current assets 29,125 47,821 Financial liabilities held for trading (7,257) 855 Notes payable 782 (1,461) Accounts payable (227,069) (329,748) Notes and accounts payable to related parties (31,082) (9,478) Income tax payable - (231,188) Accrued expenses (7,055) (56,674) Other current liabilities 4,057 9,179 Net cash provided by (used in) operating activities 188,777 (352,819) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of available-for-sale financial assets 169,763 18,173 Acquisition of property, plant and equipment (14,762) (15,863) Increase in leased-out assets (350) - Proceeds from disposal of property, plant and equipment, intangible assets and deferred charges 1,600 22,207 Payment for long-term investments under equity method (912,521) (2,140,146) Proceeds from capital reduction of long-term investment under equity method 43,858 2,214,555 Proceeds from capital reduction of financial assets carried at cost 1,386 - Decrease in refundable deposits Increase in restricted assets (90,000) - Increase in intangible assets and deferred charges (52,893) (186,888) Net cash used in investing activities (853,823) (87,853) (Continued)

9 VIA TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM FINANCING ACTIVITIES Increase in long-term bank loans $ 350,000 $ 650,000 Increase (decrease) in guarantee deposits received 10 (3,137) Net cash provided by financing activities 350, ,863 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (315,036) 206,191 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,346,069 1,139,878 CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,031,033 $ 1,346,069 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid during the year Interest $ 9,084 $ 25,385 Income tax $ 603 $ 231,965 NONCASH INVESTING AND FINANCING ACTIVITIES Transfer of long-term investment under equity method to other liabilities $ 215,848 $ 4,886 Transfer of deferred credits to gain on disposal of property, plant and equipment $ 490 $ 1,553 Additional paid-in capital transfer to make up for accumulated deficit $ - $ 690,000 Capital reduction to eliminate accumulated deficit $ 4,933,035 $ - Subsidiary's transfer of capital surplus to offset deficit taken up by the Company $ 3,232,351 $ - Transfer of property, plant and equipment to leased-out assets $ 27,073 $ 12,990 Transfer of financial assets carried at cost to available-for-sale financial assets $ - $ 22,486 PROCEEDS FROM DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND DEFERRED CHARGES Sale of property, plant and equipment, intangible assets and deferred charges $ 1,600 $ 503 Decrease in other receivable - 21,704 Cash received $ 1,600 $ 22,207 (Continued) - 8 -

10 VIA TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) PURCHASE OF PROPERTY, PLANT AND EQUIPMENT Increase in property, plant and equipment $ 13,454 $ 17,359 Decrease (increase) in payable for acquisition of property, plant and equipment 1,308 (1,496) Cash payment $ 14,762 $ 15,863 PURCHASE OF INTANGIBLE ASSETS AND DEFERRED CHARGES Increase in intangible assets and deferred charges $ 53,727 $ 182,044 (Increase) decrease in payable for deferred charges (834) 4,844 Cash payment $ 52,893 $ 186,888 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 20, 2013) (Concluded) - 9 -

11 VIA TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS VIA Technologies, Inc. (the Company ) was incorporated in September 1992 under the Company Law of the Republic of China to engage in the programming, designing, manufacturing and selling of semiconductors and PC chipsets. In March 1999, the Company s common stock was officially listed on the Taiwan Stock Exchange. There are 801 and 845 employees in the Company at December 31, 2012 and 2011 respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the Republic of China ( ROC ). For readers convenience, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the financial statements shall prevail. However, the accompanying financial statements do not include English translation of the additional footnote disclosures that are not required under generally accepted accounting principles but are required by the Securities and Futures Bureau for their oversight purposes. Significant accounting policies are summarized as follows: Accounting Estimates Under above guidelines, law and principles, certain estimates and assumptions have been used for the allowance for doubtful accounts, allowance for inventory devaluation, property depreciation, pension cost, income tax and bonuses to employees, directors and supervisors, etc. Actual results could differ from these estimates. Current/Noncurrent Assets and Liabilities Current assets include cash and cash equivalents, and those assets held primarily for trading purposes or to be realized, sold or consumed within one year from the balance sheet date. All other assets such as property, plant and equipment and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent

12 Cash Equivalents Cash equivalents, consisting of commercial paper, bank acceptances and repurchase agreements collateralized by bonds, are highly liquid financial instruments with maturities of three months or less when acquired and with carrying amounts that approximate their fair values. Financial Assets and Liabilities at Fair Value through Profit or Loss Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss ( FVTPL ) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Company recognizes a financial asset or a financial liability on its balance sheet when the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Company has lost control of its contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired. Financial instruments at FVTPL are initially measured at fair value with transaction costs recognized as expense for the year. After the initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value at the balance sheet date, with changes in fair value recognized as current gains or losses. Cash dividends received are recognized as income for the year. On the derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received or receivable or consideration paid or payable is recognized as gain or loss. A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: Publicly traded stocks - at closing prices; open-end mutual funds - at net asset values; bonds - at prices quoted by the Taiwan GreTai Securities Market; and financial assets and financial liabilities without quoted prices in an active market - at values determined using valuation techniques. Securities Borrowing and Lending Transaction Securities borrowing and lending transaction means a transaction in which a lender agrees to lend securities and the borrower to return or redeliver securities of the same kind and quantity. Under Taiwan Stock Exchange Corporation Securities Borrowing and Lending Rules, the period of a security loan may not exceed six months in maximum, starting from the execution date of the loan transaction. The net lending income, which is gross lending income minus related service charges and management fee, is recognized as other non-operating income. Cash dividends during the period of the security loan transaction should be returned by the borrower to the lender and recognized as dividend income on the ex-dividend date. Available-for-sale Financial Assets Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the cumulative gain or loss previously recognized in equity is included in profit or loss for the year. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. The recognition, derecognition and the fair value bases of available-for-sale financial assets are the same with those of financial assets at FVTPL

13 Cash dividends are recognized on the ex-dividend date, except for dividends distributed from the pre-acquisition profit, which are treated as a reduction of investment cost. Stock dividends are not recognized as investment income but are recorded as an increase in the number of shares. The total number of shares subsequent to the increase is used for recalculation of cost per share. The difference between the initial cost of a debt instrument and its maturity amount is amortized using the effective interest method, with the amortized interest recognized in profit or loss. An impairment loss is recognized when there is objective evidence that the financial asset is impaired. Any subsequent decrease in impairment loss for an equity instrument classified as available-for-sale is recognized directly in equity. If the fair value of a debt instrument classified as available-for-sale subsequently increases as a result of an event which occurred after the impairment loss was recognized, the decrease in impairment loss is reversed to profit. Revenue Recognition, Trade Receivables and Allowance for Doubtful Accounts Revenue from sales of goods is recognized when the Company has transferred to the buyer the significant risks and rewards of ownership of the goods, primarily upon shipment, because the earnings process has been completed and the economic benefits associated with the transaction have been realized or are realizable. Allowances for sales returns and others are generally recorded in the year the related revenue is recognized on the basis of past experience, management s judgment, and relevant factors. Revenue is measured at the fair value of the consideration received or receivable and represents amounts agreed between the Company and the customers for goods sold in the normal course of business, net of sales discounts and volume rebates. For trade receivables due within one year from the balance sheet date, as the nominal value of the consideration to be received approximates its fair value and transactions are frequent, fair value of the consideration is not determined by discounting all future receipts using an imputed rate of interest. An allowance for doubtful accounts is provided on the basis of a review of the collectability of accounts receivable. The Company assesses the probability of collections of accounts receivable by examining the aging analysis of the outstanding receivables and assessing the value of the collateral provided by customers. As discussed in Note 3 to the financial statements, on January 1, 2011, the Company adopted the third-time revised Statement of Financial Accounting Standards (SFAS) No. 34, Financial Instruments: Recognition and Measurement. One of the main revisions is that any impairment of receivables originated by the Company should be covered by SFAS No. 34. Accounts receivable are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the accounts receivable, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: Significant financial difficulty of the debtor; Accounts receivable becoming overdue; or It becomes probable that the debtor will enter bankruptcy or financial re-organization. Accounts receivable that are assessed as not impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Company s past experience of collecting payments, an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. The amount of the impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, after taking into account the related collateral and guarantees, discounted at the receivable s original effective interest rate

14 The carrying amount of accounts receivable is reduced through the use of an allowance account. When accounts receivable are considered uncollectible, they are written off against the allowance account. Recoveries of amounts previously written off are credited to the allowance account. Changes in the carrying amount of the allowance account are recognized as bad debt in profit or loss. Inventories Inventories consist of raw materials, supplies, finished goods and work-in-process. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made item by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Cost is determined using the moving-average method. Financial Assets Carried at Cost Investments in equity instruments with no quoted prices in an active market and with fair values that cannot be reliably measured, such as non-publicly traded stocks and stocks traded in the Emerging Stock Market, are measured at their original cost. The accounting treatment for dividends on financial assets carried at cost is the same with that for dividends on available-for-sale financial assets. An impairment loss is recognized when there is objective evidence that the asset is impaired. A reversal of this impairment loss is disallowed. Investments Accounted for by the Equity Method Investments in which the Company holds 20 percent or more of the investees voting shares or exercises significant influence over the investees operating and financial policy decisions are accounted for by the equity method. The acquisition cost of investment is allocated to the assets and liabilities of the investee (in proportion to investor s percentage of ownership) on the basis of their fair values at the date of investment, and the investment cost in excess of the fair value of the identifiable net assets of the investee is recognized as goodwill. Goodwill is not amortized. The fair value of the net identifiable assets of the investee in excess of the investment cost is used to reduce the fair value of each of the noncurrent assets of the investee (except for financial assets other than investments accounted for by the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. Profits from downstream transactions with an equity-method investee are eliminated in proportion to the Company s percentage of ownership in the investee; however, if the Company has control over the investee, all the profits are eliminated. Profits from upstream transactions with an equity-method investee are eliminated in proportion to the Company s percentage of ownership in the investee. When the Company subscribes for its investee s newly issued shares at a percentage different from its percentage of ownership in the investee, the Company records the change in its equity in the investee s net assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus from long-term investments is insufficient, the shortage is debited to retained earnings. When the Company s share in losses of an investee over which the Company has significant influence equals its investment in that investee plus any advances made to the investee, the Company discontinues applying the equity method. The Company continues to recognize its share in losses of the investee if (a) the Company commits to provide further financial support to the investee or (b) the losses of the investee are considered to be temporary and sufficient evidence shows imminent return to profitability

15 When the Company s share in losses of an investee over which the Company has control exceeds its investment in the investee, unless the other shareholders of the investee have assumed legal or constructive obligations and have demonstrated the ability to make payments on behalf of the investee, the Company has to bear all of the losses in excess of the capital contributed by shareholders of the investee. If the investee subsequently reports profits, such profits are first attributed to the Company to the extent of the excess losses previously borne by the Company. Property, Plant and Equipment and Leased-out Assets Property, plant and equipment are stated at cost less accumulated depreciation. Interest incurred in connection with the purchase or construction of property, plant and equipment is capitalized. Major renewals and betterments are capitalized, while maintenance and repairs are expensed in the period incurred. Depreciation is provided on a straight-line basis over the estimated service lives of the assets as prescribed in the tax regulations, plus one additional year for salvage value as follows: Buildings - 5 to 55 years; machinery, computer, instrument and equipment - 3 years; transportation equipment - 5 years; furniture and fixtures - 5 years; and leasehold improvements - 3 years. Fixed assets rented out, the related costs and accumulated depreciation, are classified as other assets - leased-out assets. The related cost (including revaluation increment), accumulated depreciation, accumulated impairment losses and any unrealized revaluation increment of an item of property, plant and equipment are derecognized from the balance sheet upon its disposal. Any gain or loss on disposal of the asset is included in nonoperating gains or losses in the year of disposal. Intangible Assets Intangible assets acquired are initially recorded at cost and are amortized on a straight-line basis over their estimated useful lives. Expenditure for research activities is recognized as an expense when incurred. An internally-generated intangible asset arising from development activities is capitalized and then amortized on a straight-line basis over its estimated useful life if the recognition criteria for intangible assets have been met; otherwise, the development expenditure is recognized as an expense when incurred. Deferred Charges Deferred charges which consist of telephone installation charges, computer software installations and deferred authorization charges are amortized on a straight-line basis over three to five years or authorized period. Impairment of Assets If the recoverable amount of an asset (mainly property, plant and equipment, intangible assets, and investments accounted for by the equity method) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is charged to earnings unless the asset is carried at a revalued amount, in which case the impairment loss is treated as a deduction to the unrealized revaluation increment

16 If an impairment loss subsequently reverses, the carrying amount of the asset is increased accordingly, but the increased carrying amount may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized in earnings, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as an increase in the unrealized revaluation increment. For the purpose of impairment testing, goodwill is allocated to each of the relevant cash-generating units ( CGU(s) ) that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment annually or whenever there is an indication that the CGU may be impaired. If the recoverable amount of the CGU becomes less than its carrying amount, the impairment is allocated to first reduce the carrying amount of the goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. A reversal of an impairment loss on goodwill is disallowed. Pension Cost Pension cost under a defined benefit plan is determined by actuarial valuations. Contributions made under a defined contribution plan are recognized as pension cost during the year in which employees render services. Curtailment or settlement gains or losses of the defined benefit plan are recognized as part of the net periodic pension cost for the year. Stock-based Compensation Employee stock options granted on or after January 1, 2008 are accounted for under SFAS No. 39, Accounting for Share-based Payment. Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates. Employee stock options granted between January 1, 2004 and December 31, 2007 were accounted for under the interpretations issued by the Accounting Research and Development Foundation ( ARDF ). The Company adopted the intrinsic value method, under which compensation cost was recognized on a straight-line basis over the vesting period. Income Tax The Company applies the intra-year and inter-year allocation methods to its income tax, whereby (1) a portion of income tax expense is allocated to the cumulative effect of changes in accounting principles or charged or credited directly to shareholders equity; and (2) deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, unused loss carryforward and unused tax credits. Valuation allowance is provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. If the Company can control the timing of the reversal of a temporary difference arising from the difference between the book value and the tax basis of a long-term equity investment in a foreign subsidiary or joint venture and if the temporary difference is not expected to reverse in the foreseeable future and will, in effect, exist indefinitely, then a deferred tax liability or asset is not recognized. Tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures are recognized using the flow-through method

17 Adjustments of prior years tax liabilities are added to or deducted from the current year s tax provision. According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the stockholders approve to retain the earnings. Foreign Currencies The financial statements of foreign operations are translated into New Taiwan dollars at the following exchange rates: a. Assets and liabilities - at exchange rates prevailing on the balance sheet date; b. Stockholders equity - at historical exchange rates; c. Dividends - at the exchange rate prevailing on the dividend declaration date; and d. Income and expenses - at average exchange rates for the year. Exchange differences arising from the translation of the financial statements of foreign operations are recognized as a separate component of stockholders equity. Such exchange differences are recognized in profit or loss in the year in which the foreign operations are disposed of. Non-derivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange differences arising from settlement of foreign-currency assets and liabilities are recognized in profit or loss. At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in profit or loss. At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities that are measured at fair value are revalued using prevailing exchange rates, with the exchange differences treated as follows: a. Recognized in stockholders equity if the changes in fair value are recognized in stockholders equity; b. Recognized in profit and loss if the changes in fair value are recognized in profit or loss. Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at exchange rates at trade dates. If the functional currency of an equity-method investee is a foreign currency, translation adjustments will result from the translation of the investee s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate component of stockholders equity. 3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES Financial Instruments On January 1, 2011, the Company adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34, Financial Instruments: Recognition and Measurement. The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change resulted in an increase of $496 thousand in net income for the year ended December 31,

18 Operating Segments On January 1, 2011, the Company adopted the newly issued SFAS No. 41, Operating Segments. The statement requires that segment information be disclosed based on the information about the components of the Company that management uses to make operating decisions. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Company's chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20, Segment Reporting and resulted in the Company s compliance with the requirement to disclose operating segment information. 4. CASH AND CASH EQUIVALENTS Cash on hand $ 375 $ 375 Checking accounts Demand deposits 71, ,496 Time deposits 678, ,561 Cash equivalents - repurchase agreement collateralized by bonds 280, ,041 $ 1,031,033 $ 1,346,069 At December 31, 2012 and 2011, interest rates on time deposits ranged from 0.52% to 1.10% and 0.80% to 1.37%, respectively. At December 31, 2012 and 2011, interest rates on cash equivalents ranged from 0.79% to 0.80% and 0.62%, respectively. 5. FINANCIAL INSTRUMENTS AT FVTPL Financial assets at FVTPL Financial assets held for trading - marketable equity securities $ 1,301,078 $ 2,120,130 Financial liabilities at FVTPL Derivatives - financial liabilities - forward exchange contracts $ 885 $ 8,142 The Company has been lending part of its investments in domestic quoted stocks to earn lending income since the second half of As of December 31, 2012, the entrusted stocks to Taipei Fubon Commercial Bank Co., Ltd. amounted to zero. The Company recognized $14,333 thousand and $32,434 thousand for the years ended December 31, 2012 and 2011, respectively, in non-operating income - others. The Company held derivative financial instruments in 2012 and 2011 for trading purpose and earned profit from foreign exchange fluctuation. Please refer to Note 29 for more information on Derivative financial assets and liabilities

19 Outstanding forward contracts as of December 31, 2012 and 2011: 2012 Buy/Sell Currency Expiry Date Contract Amount Forward exchange contracts Sell USD/TWD US$ 7,060 Forward exchange contracts Buy USD/TWD US$ 9,000 Forward exchange contracts Sell USD/RMB US$ 6, Buy/Sell Currency Expiry Date Contract Amount Forward exchange contracts Sell USD/TWD US$ 73,500 Forward exchange contracts Buy USD/TWD US$ 70,000 Net gain from derivative financial instruments for the years ended December 31, 2012 and 2011 amounted to $7,490 thousand and $18,440 thousand, respectively, and was recognized in exchange gain, net and gain on disposal of investments. Net loss on valuation of financial instruments held for trading for the years ended December 31, 2012 and 2011 amounted to $819,937 thousand and $1,561,488 thousand, respectively, and was recognized as valuation loss on financial assets and liabilities, net. 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS Domestic quoted stocks $ 53,342 $ 157,687 Net gain on sale of available-for-sale financial assets for the years ended December 31, 2012 and 2011 amounted to $153,469 thousand and $5,954 thousand, respectively, and was recognized as gain on sale of investment, net. Unrealized (loss) gains on valuation of financial instruments as of December 31, 2012 and 2011 amounted to $(88,051) thousand and $106,722 thousand, respectively, and were recognized as unrealized gains on financial instruments in stockholders equity. 7. NOTES AND ACCOUNTS RECEIVABLE Notes receivable $ 2,592 $ 11,859 Accounts receivable 272, ,297 Less allowance for doubtful accounts (8,878) (13,831) Less allowance for sales returns and allowance (163,392) (127,662) Notes and accounts receivable, net $ 102,475 $ 178,

20 8. NOTES AND ACCOUNTS RECEIVABLE FROM RELATED PARTIES Notes receivable $ 1,403 $ - Accounts receivable 89, ,813 Less allowance for doubtful accounts (639) (790) Less allowance for sales returns and allowance (9,998) (12,816) Notes and accounts receivable from related parties, net $ 79,917 $ 124,207 Movements of allowance for doubtful accounts were as follows: Notes Receivable Years Ended December 31 Accounts Receivable (Including Related Parties) Overdue Receivable Notes Receivable Accounts Receivable (Including Related Parties) Overdue Receivable Balance, beginning of year $ - $ 14,621 $ 3,064 $ - $ 17,712 $ 5,926 Deduct: Reversal of allowance - (5,104) - - (5,953) - Add (deduct): Reclassifications ,862 (2,862) Balance, end of year $ - $ 9,517 $ 3,064 $ - $ 14,621 $ 3, OTHER RECEIVABLES Value-added tax receivable $ 7,778 $ 21,773 Income tax receivable 878 1,770 Interests receivable Other receivables from related parties - others 50,338 70,441 Receivables on securities lending transaction - 18,039 Others $ 59,886 $ 112,973 Other receivables from related parties are described in Note 25. Receivables on securities lending transaction for the year ended December 31, 2011 resulted from the lending of the securities in domestic quoted stocks. 10. INVENTORIES Resale merchandise $ 20,667 $ 6,487 Finished goods 106, ,262 Work-in-process 231, ,993 Raw materials 209, ,463 $ 568,680 $ 1,120,

21 As of December 31, 2012 and 2011, the allowance for inventory devaluation was $1,010,481 thousand and $1,018,159 thousand, respectively. The cost of inventories recognized as cost of goods sold for the years ended December 31, 2012 and 2011 included $7,678 thousand and $316,259 thousand, respectively, due to reversal of write-downs of inventories; $155,791 thousand and $387,304 thousand, respectively, due to obsolescence of inventories; and $(1,131) thousand and $2,008 thousand, respectively, due to (loss) gain on physical inventory. 11. OTHER CURRENT ASSETS Prepaid expenses $ 35,536 $ 37,305 Temporary debits 7,694 2,019 Excess value-added tax paid 1 33,032 $ 43,231 $ 72,356 On December 31, 2012 and 2011, prepaid expenses were primarily prepayments for rent expense, software cost and insurance premiums. 12. FINANCIAL ASSETS CARRIED AT COST Financial assets carried at cost as of December 31, 2012 and 2011 were as follows: Non-publicly traded stocks - domestic $ 5,975 $ 5,975 Non-publicly traded stocks - international 14,012 23,129 $ 19,987 $ 29,104 The above investments are measured at cost because of lack of active market and reliable fair value. In 2011, financial assets carried at cost transferred to available-for-sale financial assets due to securities public listing amounted to $22,486 thousand. For the years ended December 31, 2012 and 2011, due to the deficit of the investees, the Company recognized impairment loss of $9,117 thousand and $2,475 thousand, respectively. As of December 31, 2012, the accumulated impairment loss on financial assets carried at cost was $90,317 thousand. In July 2012, the Company received the refund of $1,386 thousand from the liquidation of istor Networks, Inc

22 13. LONG-TERM INVESTMENTS UNDER EQUITY METHOD Original Cost Ownership Carrying Value % Carrying Value Ownership % Publicly traded stock Vate Technology Co., Ltd. $ 493,031 $ 605, $ 621, Non-publicly traded stock Viatech Co., Ltd. 4,934,542 4, , Viabase Co., Ltd. 8,279,498 1,044, ,820, VIA Technologies GmbH 1,433 11, , Tungbase Technologies Ltd. 71,342 (167,776) (129,217) VIA Communications, Inc. 10,000 10, , VIA Labs, Inc. 450,000 (177,289) , WonderMedia Technologies, Inc. 480, , , Intumit Inc. 24,000 23, , idot Computer Inc. 55, Powernews Multimedia Co., Ltd. 76,000 7, , VIA Embedded, Inc. 2,600 2, , $ 14,877,446 1,509,683 3,702,009 Transfer of long-term investments to other liabilities 345, ,217 $ 1,854,748 $ 3,831,226 In 2011, the Company invested $1,085,186 thousand, $1,030,960 thousand and $24,000 thousand, respectively, in Viabase Co., Ltd., Viatech Co., Ltd. and Intumit Inc. Due to operational concerns and enhancement of capital efficiency, Viabase Co., Ltd. had decreased its capital and refunded $2,214,555 thousand to the Company. In 2012, the Company invested $65,956 thousand and $846,565 thousand, respectively, in Viabase Co., Ltd. and Viatech Co., Ltd. In addition, to enhance operating efficiency, Tungbase Technologies Ltd. had decreased its capital and refunded $43,858 thousand to the Company. As of December 31, 2012 and 2011, the amounts of publicly traded stocks were $597,643 thousand and $462,318 thousand based on the closing price at December 31, 2012 and 2011, respectively. In addition, in 2012 and 2011, the investee company declared and paid cash dividends of $30,664 thousand and $73,511 thousand, of which amounts $20,323 thousand and $48,721 thousand were paid to the Company proportionately, respectively. In 2012 and 2011, due to the changes in capital surplus of Viabase Co., Ltd., the Company proportionately increased its capital surplus by $3,335 thousand and $3,232,351 thousand, respectively. Please refer to Note 21 for information about the transfer of capital surplus to capital and compensate for accumulated deficit in March In accordance with SFAS No. 7 and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the Company prepared consolidated financial statements which included all subsidiaries of the Company